Expectations on the private sector for tackling global challenges run high. Private sector development (PSD) is becoming a major development policy area in international organisations, in the EU and in its member states. The importance of the private sector is also growing due to the sustainable development goals of Agenda 2030. PSD is meant to function as a catalyst for private sector investment to developing countries, creating inclusive and sustainable growth and alleviating poverty. There are many stakeholders in PSD projects – companies, state actors and/or NGOs – with sometimes very differing goals. Both the scepticism and the expectations towards PSD are mainly aimed at private sector engagement in which official development aid (ODA) is invested in partnerships with private companies. How does the private sector advance private sector growth?

Speakers:

Antti Karhunen, Head of Unit, Directorate-General for International Cooperation and Development, European Commission

Juha Jokela, Programme Director, the Finnish Institute of International Affairs

Summary of the Seminar

Programme Director Juha Jokela from FIIA opened the
seminar, addressing the need to discuss the opportunities and challenges of
private sector development (PSD). Antti Karhunen, Head of Unit at the
European Commission, gave an overview of the European development cooperation.
He emphasized that the EU is the biggest donor in the world, providing more
than half of the official development assistance (ODA) to the developing
countries. Many issues affect private sector development opportunities and
challenges. As population grows rapidly, we have to create 400 million new jobs
by 2050 only in Africa. At the same time, economic growth in Sub-Saharan Africa
was the highest in the world last year, and urbanization continues. SDGs are
particularly important with regard to EU commitments for future action in the
areas of private sector and trade. He remarked that developing countries should
have a bigger role in global value chains, and the EU should leverage the
private sector’s role in development in the areas where market failures exist.
He emphasized job
creation: the private sector provides 90 % of jobs in developing countries;
investments: there is a huge financing gap between ODA and real investment
needs; innovation: energy,
agriculture, infrastructure, digitalisation, mobile solutions; and growth: 4%-5% of GDP growth on
average in developing countries and emerging economies. The EU could help the private sector to
engage with developing countries by for example partnering with them,
mainstreaming key actors and providing blending, meaning that the EU combines
its grants with loans and equities. To
conclude his remarks he mentioned that the Commission is developing a practical framework arrangement to incentivize
businesses to partner for development objectives.

Tito Gronow, Visiting Senior Fellow at FIIA, shared findings
from his current research on private sector development (PSD) in the
development cooperation of small and medium-size EU member states in Northern
Europe. Financial flows between the North and South are changing and the relative
importance of private capital flows is significantly increasing. Still, in the
countries selected for this study, the role of ODA continues to play an
important role. The economic crisis that began in 2008 has had an impact on
both ODA and private flows of the researched countries. There is no direct
correlation between increased PSD and decreased untied aid. Development
agencies identify and coordinate new actors that can contribute to development
both financially and through their expertise and competence. The private
sector is very relevant to economic growth but also to the sharing of knowledge
and innovation. There is more and more cooperation between state actors, companies
and NGOs in projects supported by the selected countries. PSD can make things
happen that would not otherwise happen, for example, by sharing risks with
publicly financed funds for promising projects in challenging markets. PSD aiming to promote sustainable and inclusive economic growth in
developing countries is clearly a development issue. However, many aspects of
PSD are also relevant for export promotion. There has been
a preference for SMEs in PSD. However, development agencies are increasingly
looking forward to partnerships with companies of all sizes. Most companies are interested in middle income countries with their
growing middle classes. The focus of the development agencies has traditionally
been on LCDs. The primary aims are poverty
alleviation and sustainable and inclusive growth in developing countries. Job
creation in developing countries is also used as one of the main indicators for
the success of PSD. The Transfer of
Innovation may also be considered one of the indicators on the effects of
development. The selected countries all prioritise environment and climate. The prioritised industry sectors in PSD
follow the same pattern as export promotion.

Lisbeth D. Jespersen, Deputy Head of Department, shared
experiences from Danish Foreign Ministry’s point of view. The rationale of the
Danish development cooperation is to adjust to the current challenges. Denmark
identifies synergies between development work and trade. Synergy is about
making development assistance (Danida) and facilitation of trade and investment
(Trade Council) mutually supportive to address development challenges and
promote growth and employment in developing countries and in Denmark. She
remarked that the Sustainable Development Goals and the Paris Climate Agreement
set the guidelines for development cooperation. Denmark contributes to
sustainable economic growth promoting Danish competencies and solutions. We
cannot achieve these goals alone, so we need to include everybody, ranging from
the field of research to the civil society and the private sector. She also
noted that the aim of the Danish government is to reduce poverty, but also to
advance security, use Danish competencies best and promote the country’s
interests. In order to address development challenges, we must identify
synergies between development assistance and trade facilitation. She remarked,
that Danish economic diplomacy has had good results, and will play even bigger
role in the future. In addition, we should enhance team work by consulting our
colleagues and bringing knowledge and expertise to the table from various
ministries.

Executive Director of the Finn Church Aid, Jouni Hemberg commented, that the informal sector of the developing
countries should not be forgotten. It can play a crucial role in development. Private
investment and new actors could increase resources of development cooperation,
but it should not reduce official development assistance. He noted that in the most
fragile contexts, traditional ODA is still needed to build societies. Civil
society organizations remain relevant because they can for example help
investors to reach small and medium-sized enterprises. Civil society could
offer expertise for other sectors and they should be more creative in mobilizing
resources.

Pekka Tolonen, Vice President and Head of Region
West Europe & Africa at Finpro Oy, commented that business philosophy is
not in contradiction with sustainability. Companies want to engage with new
markets, but the developing markets are still difficult to address. Most
potential companies for developing markets are the ones that grow steadily, who
want to take over new market segments and are concerned with the profitability
of their activities. He added that we must consider where Finnish companies
could deliver the strongest impacts.

Dr Jokela then opened the floor to questions, which concerned for
example the difficulties in cooperation between the private and public sectors,
taxation and illicit financial outflows, and which private sector do the speakers
mean – the one in the developing country, or the one here. All panelists agreed
that both private sectors matter. Mr Karhunen also added that the European
Commission aims to support the local private sector, but an improving business
environment also benefits external investors. When it comes to tax havens and
corruption, the European Commission has a clear policy not to use tax havens
and they have directives to ensure transparency.